World Economy

USD on Course for Longest Losing Streak in 14 Years

The dollar index has dropped 1.3% in August.The dollar index has dropped 1.3% in August.

August has been yet another bearish month for the greenback, leaving the American currency poised to post its sixth consecutive monthly fall – its longest losing streak in more than 14 years.

The dollar has reached the long-term support level near 0.93 identified on the US dollar index chart several weeks ago. That is a critical support level. Below this support level lies the abyss with the next solid support near 0.83, CNBC reported.

However, the weekly chart puts the dollar behavior into a wider context. The dollar index chart has been dominated by a very broad sideways trading band that started in March 2015. The upper level of the band is resistance near 1.00. The lower edge of the band is support near 0.93.

If support holds near 0.93 then traders will watch for a rebound rally and a retest of resistance near 0.97. That behavior will signal a continuation of the trading band behavior. Failure of support near 0.93 plunges the global economy into an unwelcome and unwanted currency war.

The dollar index, a measure of the buck against six developed market counterparts, has dropped 1.3% in August, and has shed 9.4% since the end of February, Reuters data show.

Coming into this year, many investment houses had incorrectly forecast dollar strength, given the Trump administration’s promise to ignite stronger growth and a Federal Reserve that appeared to be primed to more rapidly increase the pace of policy tightening.

Donald Trump has, however, become lodged in a series of scandals that have severely diminished hopes that the former businessman will be able to strike a deal with lawmakers to reform America’s tax code or launch a large infrastructure spending program.

Meanwhile, despite robust gains in the jobs market, inflation has continually underwhelmed expectations, something that has called into question whether the Fed will raise interest rates for a third time this year. The as yet unknown impact of Hurricane Harvey on the economy has further muddied the outlook.

At the same time, other global economies, particularly the eurozone, have perked up. The bloc’s economy grew at the quickest clip in five years in the second quarter, lifting expectations that the European Central Bank will unveil in coming months plans to begin unwinding its bond buying program.

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